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Latest Headlines
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Dec 16, 2009 7:34:00 AM MST
EnCana cited as next possible takeover target after $29 billion XTO acquisition (ExxonXTO)
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CALGARY _ ExxonMobil Corp.´s (NYSE:XOM) deal to buy a U.S. natural gas player for US$29-billion has Canada´s oilpatch abuzz about whether a firm on this side of the border could be next, with EnCana Corp (TSX:ECA) standing out as the most likely candidate.
After the world´s largest publicly traded company announced plans to acquire XTO Energy Inc. (NYSE:XTO) at a 25 per cent premium, investors quickly took note, driving up the share prices of a number of top natural gas-levered firms on the Toronto Stock Exchange.
"The thought is there could be another deal. That´s always the speculation," Genuity Capital Markets analyst Philip Skolnick said Tuesday.
XTO, based in Fort Worth, Texas, is known for its vast U.S. onshore natural gas production and ability to drive gas out of tough-to-access reservoirs with techniques like horizontal drilling.
The XTO deal immediately drew parallels to Calgary-based EnCana Corp. (TSX:ECA), as both are in the same size category and are known for their expertise in developing unconventional natural gas.
Two weeks ago, EnCana spun off its oil business into a new company so that it could so it could focus exclusively on exploiting promising shale gas reservoirs in Canada and the United States.
"The real go-to stock is EnCana because it´s the only senior that´s a pure play like XTO," said Skolnick.
EnCana´s stock soared five per cent on Monday, and gained another 2.3 per cent the following day, closing at C$32.28 on the Toronto Stock Exchange Tuesday.
Other Canadian natural gas producers like Talisman Energy Inc. (TSX:TLM), Canadian Natural Resources Ltd. (TSX:CNQ) also saw their share prices rise Monday, but were relatively flat on Tuesday.
"It gives people confidence in gas prices, and maybe also natural gas resource plays," Skolnick said.
When it comes to natural gas acquisitions, growth-hungry U.S. firms like ExxonMobil are more likely to look "in their own backyard" at the likes of Devon Energy Corp. (NYSE:DVN), Chesapeake Energy Corp. (NYSE:CHK) and EOG Resources Inc. (NYSE:EOG) than north of the border, said John Stephenson, portfolio manager with First Asset Investment Management in Toronto.
The real action will be in the oilsands, since 175 billion barrels of Canada´s 178 billion barrels of total reserves are there, he said.
Possible targets include oilsands players like Opti Canada Inc. (TSX:OPC), UTS Energy Corp. (TSX:UTS) and Oilsands Quest Inc. (AMEX:BQI).
Giant energy companies like ExxonMobil have a reserve life of little more than a decade, so the XTO deal could be "a little bit of a sign of desperation" as it scrambles to grow, said Stephenson.
"I think it kind of highlights the fact that it´s a scarce resource, it´s non-renewable. And that the options for growth in the space are relatively small," he said.
"They´re paying up to get growth, they´re paying up to get land and they´re not getting any bargains. But on the other hand, you´re extending your reserve life and you´re diversifying away from these parts of the world which are increasingly hostile towards you."
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